First Time Buyer Guidance from Next Home

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Buying a home for the first time can be a daunting prospect, so we have put together the following information which is designed to help guide you through this process. Please contact us if you require any further information or would like to speak to one of our expert mortgage advisers.

Mortgage Jargon Buster

Annual Percentage Rate (APR) The APR shows the true cost of borrowing as it includes all repayments on the loan and any associated fees. It will always appear on mortgage illustrations and quotes.

Arrangement FeeThis is a charge levied by the lender to cover the costs of administering and reserving the funds for certain types of mortgage. It can be paid separately or added to the loan amount.

Base RateThe rate of interest set by the Bank of England Monetary Policy Committee.

CompletionThe completion date is the date on which your solicitor forwards the money from your lender to the solicitor of the vendor. It is this date that you become the legal owner of your new property.

ConveyancingThe legal procedure surrounding the transfer of ownership of a property between buyer and seller, usually carried out by a solicitor or licensed conveyancer.

Conveyancing FeeThe charge made by a solicitor or conveyancer for undertaking the legal procedures necessary for the transfer of ownership of a property.

Credit CheckThe procedure by which a check is made on the credit history of a mortgage applicant, usually conducted by one of the large dedicated credit check agencies on behalf of a prospective lender. The check will include items such as credit card repayments, outstanding debts, arrears and County Court Judgements.

Credit HistoryA history of an individual`s current and past debts. Checking a credit history helps a lender to assess the likelihood that a prospective borrower will maintain their mortgage repayments.

Credit RatingAn assessment of a person`s likelihood of keeping up – or otherwise – on the repayments on their loan. A credit rating is usually based on a person`s credit history.

Credit Reference AgencyA company that collects and stores financial and public records of a persons credit history. Most lenders will employ a Credit Reference Agency to check your payment records as part of their assessment of your application.

Credit ReportA report prepared by a Credit Reference Agency and which details the credit history of an individual. The credit report will be used by a lender to help assess the applications of prospective borrowers.

DeedThe legal document that sets out ownership or title of a property.

Early Redemption FeeA charge levied by the lender as a penalty if a mortgage is paid off before the end of its term. Also known as an Early Repayment Charge.

EquityThe difference between the current market value of a property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.

Equity ReleaseThe mortgage taken out on a home that is already fully owned, typically in order to make use of the capital tied up in it.

Exchange of contractsWhen the buyer and seller confirm legally binding commitments to the sale, of a property and agree on the terms and conditions of the sale.

Existing LiabilitiesYour financial outgoings, which will include any loan repayments, regular fees and child maintenance. Borrowers are obliged to disclose all such outgoings as part of the mortgage application process.

Independent Financial Advisor (IFA)A person qualified and regulated to advise on financial products which can include mortgages, life insurance and investments.

Land RegistrationThe process of registering your title to an area of land with the Land Registry, usually handled by a solicitor.

Land Registry FeeA Charge Levied by a solicitor to register ownership of an area of land with the land Registry.

Loan to Value (LTV)The proportion of the value of a property that a lender is prepared to lend.

Local Authority SearchA check carried out by a purchaser`s solicitor to ensure that a property is not subject to any local authority issues such as a new road, town planning, or any other enforcement notices.

RateThe annual rate, expressed as a percentage, of the interest on a loan.

Redemption PenaltyA penalty levied by the lender when the borrower pays off a mortgage.

RemortgagingThe process whereby a new mortgage replaces an old one and both use the same property as security.

RepossessionThe taking back of a property by a lender from the borrower usually due to default.

Shared EquityA Scheme whereby a borrower purchases part of a property and the other part is purchased by a third party, such as a housing corporation. A shared equity scheme differs from shared ownership in that no ongoing rent is paid to the third party. However, any future increases to a property`s value results in the third party`s share of equity in the property increasing proportionately. In other words, a borrower does not fully benefit from future increases in a property`s value.

Standard Variable RateThe standard interest rate (SVR) set by lenders, which can increase or decrease. The Standard variable Rate often applies at the end of any fixed, capped or discounted period.

Structural SurveyA survey detailing the condition of a property, undertaken by a qualified surveyor, and for which the surveyor is responsible. A structural survey is the most detailed, and most expensive of the property reports available. Also known as a “Building Survey”.

Title SearchAn investigation carried out by a conveyancer or solicitor, into the history of ownership of a property. The search will check for unpaid claims, restrictions or any other problems that may affect ownership.

TrackerA mortgage whereby the rate of interest charged, tracks a specified, interest rate or index. Usually a tracker mortgage will track the Bank of England base rate.

UnencumberedA property that has no loans or borrowings secured on it.

ValuationA simple survey carried out on a property for the benefit of the lender.

Tips for First Time Buyers

The BasicsA mortgage is a large loan secured against your home usually for a standard term of 25 years however the length of term can vary with each lender.

Remember that a mortgage is a secured loan, which means that the lender could repossess your home if you do not keep up the repayments. There are two main ways you can repay your home loan, either through a repayment mortgage or an interest only mortgage.

Repayment This means that you pay back the capital and the interest of your mortgage on a monthly basis.

**TIP** - This provides certainty of capital repayment and is not dependant on investment return.

Interest Only This means you pay off the interest on your mortgage but not the actual lump sum or capital you owe.

You will need to have in place an investment such as an ISA or a pension that will be used to pay off the capital sum at the end of the term.

** TIP** - Your investment may not provide the lump sum required to repay your mortgage, leaving you with an outstanding debt which you will need to pay off from other means.

So Much Choice There are so many deals available it can be confusing.

**TIP** - Charles Cameron & Associates being totally independent, can advise on the whole market, and will help you decide the most suitable product for your circumstances.

Your home may be repossessed if you do not keep up repayments on your mortgage .

There may be a fee for mortgage advice. The precise amount of any fee will depend on your own circumstance, but typically this could be 0.5% of the amount borrowed.

Variable This refers to the Lender’s Standard Variable rate (SVR) which will fluctuate. It will generally follow the direction of the Bank Of England Base Rate, but this is not always the case, and lenders can change their SVR at anytime.

**TIP** - A mortgage lender`s SVR can be relatively high, and is usually charged once an offer period is over. It is recommended that you speak to one of our team to explore whether it may be cheaper to move to another product or alternative lender.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Fixed A fixed rate mortgage allows you to set your rate at a certain level for a given period of time. So regardless of whether the lender’s rate changes up or down, your payments will remain the same. You will be tied in for as long as the fixed rate applies and possibly beyond.

**TIP** - A fixed rate will help you budget confidently as your rate will remain the same for a fixed period of time.

Discount These mortgages offer a discount off the lender`s SVR. The initial rate may look good; you have to remember that this is variable and could go up and down with SVR, which will in turn move in line with BEBR. Therefore, while your rate could drop, it could well rise. After the discount period, you will also revert to the SVR.

**TIP** - Be careful, with variable discounts, your rate and your monthly repayments can rise as well as fall.

Tracker Rate A tracker rate, is occasionally linked to the lender’s variable rate, but is most commonly linked to the Bank of England base rate. The tracker follows the Bank of England base rate with a discount or a premium (or even sometimes at the same rate as the Bank of England base rate) for a period of time. Any reduction will be passed on in full, which is not always the case if your rate is linked to the lenders Standard Variable Rate. Some trackers, but not all, come with tie-ins.

**TIP** - Tracker rates are popular for those that believe interest rates will remain low for a lengthy period of time.

Flexible Puts you in charge of your finances allowing you to overpay, underpay, borrow back overpayments and take payment holidays.

**TIP** - If you can afford to make overpayments then you will pay your mortgage off more quickly.

Deciphering Terminology

Mortgage Broker and Lender You can speak directly to a lender such as a Building Society or bank and select one of their first time buyer mortgages. The benefit of using a mortgage broker is they have access to a far greater range of products and have a vast knowledge of the various lenders, mortgages, rates and charges to secure the most suitable deal for you. They will also take care of all the associated paperwork and will liaise with Estate Agents, Solicitors and Surveyors on your behalf.

Estate Agent Estate agents will be very enthusiastic to sell you a property; their costs are paid for by the vendor, upon sale of the property. They will often encourage you to see their own mortgage broker, but be careful as usually they may only be able to offer mortgages from a small panel of lenders.

Conveyancing SolicitorSpeak to a few solicitors and ask them how their charges are structured, and what the total costs will be. Find out what their services and searches cover. Explore if there is any other information you may need about the local area around the property. We will be happy to recommend a number of solicitors we work closely with.

SurveyorSurveyors offer a variety of surveys, with different levels of detail available. You have to decide which is appropriate to your needs. A full structural survey is an in-depth survey and will let you know if there are any problems structurally with the building; a home condition report will not be as thorough and only report on more superficial aspects of the property. Again, we can recommend surveyors should you wish.

DepositA deposit is the amount of money that you will pay upfront towards the price of the house. The balance will be made up from mortgage finance.

Income MultiplesSome mortgage lenders will base how much they will lend you on a multiple of your gross annual salary, usually at 4 – 5 x salary. However they will look at your other monthly commitments to ensure you can afford the repayments.

Repayment Mortgage A mortgage with an agreed term over which it should be repaid, typically 25 years. Repayments are usually monthly, consisting of both `capital` (the sum you initially borrowed) and `interest` (which accrues from day one). Assuming the agreed repayments are maintained, the loan will be repaid at the end of the term.

Interest-only mortgageOnly interest payments are made to the lender and the capital sum is not repaid. A repayment vehicle will need to be set up such as a pension or ISA, and at the end of the loan term, the investment is used to repay the capital sum.

Mortgage types and interest ratesAn interest rate is literally, in percentage terms, the rate that will apply to your loan. Different loan types will attract different rates of interest, which will be priced in different ways. Our professional advisers will be able to recommend a mortgage product most suitable to your circumstances.

Early Repayment ChargeThis is the charge to redeem your mortgage if you are still within the `tie-in` period. Tie-ins vary in duration and usually apply to most loans that have a reduced initial rate. An early repayment charge is usually calculated as a percentage of the outstanding loan or a set number of month’s mortgage payments. A tiered early repayment charge is the amount you pay to redeem, reduces with each year of the tie-in.And an extended tie-in means that the charge will continue to be payable beyond the initial term of the mortgage.

InsuranceOnce you have purchased your new home, your mortgage lender will require you to insure the building from damage, such as flooding, fire or subsidence. Protecting your contents is also a very prudent thing to do. You can buy a combined buildings and contents insurance policy. You may also need life insurance, critical illness cover or mortgage payment protection insurance (MPPI) in case you are made redundant or suffer a prolonged absence from work and are not able to meet your mortgage payments. If you are buying your home with someone else, you might wish to take out some form of life insurance. If one of you dies, this will pay off the mortgage or pay out a lump sum. Make certain that you have the right beneficiary appointed. Please speak to one of our advisers if you would like help in this area.

Loan to valueThis is the ratio between the size of loan and the value of property. So, for example if you require a £90,000 mortgage on a property valued at £100,000 the loan-to-value is 90%.

Portability A mortgage which can be transferred between properties with the same lender, when you move house.

OverpaymentsMonthly repayments to a mortgage can be increased, resulting in the mortgage being repaid before the end of the mortgage term.

Legal costsUsually a solicitor or licensed conveyancer needs to be appointed to deal with the legal aspects of purchasing a property which will incur costs. You should ask for an estimate of these costs before you instruct the legal expert.

Valuation/SurveysIt is a legal requirement that the lender has the property valued to ensure that the property is an acceptable security. The mortgage lender`s surveyor will need to inspect and value the property. The cost, if any, of this valuation depends upon which lender you choose and the value of the property.

Arrangement fees Most lenders charge an arrangement or application fee for a mortgage. Some lenders will allow you to add this to the mortgage and the fee varies depending on the lender chosen and the mortgage product.

Obtaining a Mortgage for First Time Buyers

Guarantor mortgagesYour parents can act as guarantor for the entire debt (mortgage) and you may be able to borrow at a higher LTV, If so, you won`t require such a large deposit.

Graduate and professional mortgagesCertain lenders will lend higher amounts to young professionals who have a structured career path, where their earnings may significantly increase over a short period of time.

Joint mortgages Where you team up with a friend or family member to borrow more, share the costs but have joint mortgage payment liability.

Shared ownership You own part of a property, pay rent to the co-owner (usually a housing association) and take a mortgage out for the part you are buying.

Renting a room If there`s a spare room that you can let in your house, then the rental income can sometimes be taken into account when deciding how much to lend to you. Some of this can be received free of any income tax.

Rent to buy Your monthly rent commitment is taken into consideration by a lender, as to the level of repayment you can afford to pay, as it demonstrates affordability.

Extended terms Some lenders will allow you to increase the repayment term of a mortgage to 40 years. This reduces the monthly payments, but will result in more interest being paid, unless you decrease the term of the mortgage at some stage, typically when your earnings have increased.

Types of Mortgages

Tracker – rate mortgage

A tracker rate, is occasionally linked to the lender’s variable rate but is most commonly linked to the Bank of England base rate. The tracker follows the Bank of England base rate with a discount or a premium (or even sometimes at the same rate as the Bank of England base rate) for a period of time. In this instance, any reduction will be passed on in full, which is not always the case if your rate is linked to the lenders Standard Variable Rate which is also known as the SVR. Some trackers, but not all, come with tie-ins.

Fixed-rate mortgage

A fixed rate mortgage allows you to set your rate at a certain level for a given period of time. So regardless of whether the lender’s SVR changes your payments remain the same. You will be tied in for the length of the fixed rate usually 2, 3 or 5 years, and in some cases for a period of time afterwards.

Flexible mortgage

A flexible mortgage offers the facility to underpay or overpay or even take payment holidays. It also allows you to borrow lump sums back from your loan free of additional arrangement fees. There are often no tie-ins with flexible loans, meaning you can redeem the mortgage at any time with no penalty. A true flexible mortgage will calculate your interest on a daily, not an annual, basis.

Offset Mortgage

An offset mortgage takes a flexible mortgage one stage further and comes with all the flexible features described above, but in addition offsets your savings, which are transferred into an account with the lender – against the debt of your mortgage. For example, if you had £5,000 in savings and a mortgage of £100,000, you would only pay interest on the remaining balance of £95,000. The reduced interest you pay, results in a shorter loan term. Offset mortgages work most effectively if you have considerable savings. Interest rates on offsets can also be more expensive.

Discount mortgage

Some lenders offer a discount from their SVR. For example, if you were offered a 1% discount off the lender`s variable rate of 5%, your rate would be 4%. It is important to note that your rate will also have the potential to go up and down with the SVR. The period over which the discount is available will vary. You will be tied in for as long as the discount rate applies and possibly beyond.

Capped – rate Mortgage

A variation on the theme of the fixed rate above, is a capped rate. The ‘cap’ means that there is an upper limit on the interest rate you will pay. If the lender’s SVR rises above this limit, your rate will be unaffected, just as with the fixed rate. However, if the lender`s rate falls below the level of your cap, then your rate will fall. Again, you will be tied in for as long as the capped rate applies.

Variable-rate mortgage

This refers to the Lender`s Standard Variable rate which fluctuates. It will generally follow the direction of the Bank Of England Base Rate, but this is not always the case, and lenders can change their SVR at anytime.

Viewing a Property Checklist

Property Address

Asking Price £

How much is the council tax for the area?

Is the property freehold or leasehold?

If leasehold how much is the ground rent & service charges per year?

Is there allocated parking?

If there isn`t is it easy to park?

Does it have a private or shared garden?

What aspect is the garden facing?

Does the property have central heating?

What are the neighbours like?

Are transport links good?

How far is the nearest station?

Is the area noisy? (go at different times of day/night)

Where are the nearest shops?

Is the property tied up in a chain?

How quickly would the owners like to move?

Buying your First Home

Decide where and what your requirements are from the property you want.

Contact a mortgage broker; who will help you choose the right mortgage. Give you help with your application and you will receive an `agreement in principle` on the amount you can borrow.

Register with estate agents in the area you want to live and search on-line.

Once you have found a property, make an offer to buy based on what you have seen and the home information pack.

If vendor accepts offer and conditions, instruct estate agent to take the property off the market.

Instruct a solicitior to act on your behalf; giving details of the property location and the vendor`s estate agent.

Your solicitor will contact the vendor`s solicitor requesting title deeds to the property.

Find a surveyor and ask for a home-buyers report or a survey to be carried out.

The mortgage lender will carry out a valuation of the property; on sight of the property valuation and data backing up your application agrees to lend you the money for the property.

Send the survey report to the solicitor. He will give you his view on it and you may want to discuss any remedial work you want to request.

The solicitor will carry out local authority searches and find out if any alterations have been made. This would be the time to negotiate fixtures and fittings.

The solicitor will finalise the details in the contract with the seller`s solicitor and confirms mortgage details with your mortgage lender.

You pay a deposit into your solicitor`s account, which will be held untl exchange of contracts.

On the day of exchange of contracts, your solicitor exchanges contracts with the seller`s solicitor and sends the deposit over. A date for completion (when you accept the keys and move in), which will have been proposed before-hand, is agreed upon.

Your solictior will liaise with your lender to ensure the mortgage is available on the completion date and will prepare the property transfer deed, which is signed by you and the seller, and lodged with the seller`s solicitor until completion.

The mortgage lender transfers the money into your solicitior`s account ready for completion.

On completion day, your solicitor transfers the money to the sellers` solicitor in return for the transfer deed, Land Registry certificate and the keys. The sale is completed.

Your solicitor arranges for the transfer deed to be stamped, pays the stamp duty and sends the transfer deed to the Land Registry to record you as the new owner.

Your solicitor passes the deed to your mortgage lender as security for the loan and then he will send you the bill for his services and costs.